Last revised: September 2021
SOLUTIONS MANUAL
to accompany
Fundamental Accounting Principles
17th Canadian Edition
by Larson/Dieckmann/Harris
Revised for the 17th Edition by:
John Harris, Seneca College
Technical checks by: Rhonda Heninger, SAIT
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw Hill Ltd. 8-1
,Last revised: September 2021
Chapter 8 Receivables
Chapter Opening Critical Thinking Challenge Questions*
- It is critical for businesses like WN Pharmaceuticals to assess customer credit to
determine whether a customer can pay for purchases on a timely basis. Collecting
payments on a timely basis provides businesses the cash to continue their business
activities such as buying more inventory or paying for expenses. Assessing
customer credit also limits the cost of having customers default on payments due to
financial difficulty. If customers cannot pay for purchases, a bad debt expense
needs to be recorded in the income statement, which decreases profit.
*The Chapter 8 Critical Thinking Challenge questions are asked at the beginning of this chapter.
Students are reminded at the conclusion of this chapter to refer to the Critical Thinking
Challenge questions at the beginning of the chapter. The solutions to the Critical Thinking
Challenge questions are available here in the Solutions Manual and accessible to students in
the print and ebooks.
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw Hill Ltd. 8-2
,Last revised: September 2021
Knowledge Check-Up Questions
1. c) 2. a) 3. a) 4. b) 5. c)
6. a) 7. b) 8. c) 9. d) 10. c)
Concept Review Questions
1. In order to record accounts receivable and revenue the criteria of performance,
measurement and collectability need to be met. Performance indicates that a company
transfers the product or service to the customer. Measurement indicates that there is a
determined price and cost of a sale transaction. Collectability indicates that it is probable
that the company will collect payments from a customer.
2. The roles or responsibilities that should be separated within the accounts receivable
process are:
1. Employee responsible for receipt of cash should not have access to record or
authorize transactions in the Accounts Receivable ledger or customer accounts.
2. Employee receiving the cash or preparing the deposit should not be able to
record cash transactions or prepare the bank reconciliation
3. The bank reconciliation should not be prepared by an employee that is involved
in either cash receipts or disbursements.
4. Write offs and adjustments to receivables should be performed by an employee
that does not have ability to record transactions.
3. Writing off a bad debt against the allowance does not reduce the estimated realizable value
of a company’s accounts receivable because the write-off reduces the balances of both
Accounts Receivable and Allowance for Doubtful Accounts by equal amounts so the
difference between the two accounts remains the same.
4. The adjusted balances of Bad Debt Expense and Allowance for Doubtful Accounts are
virtually never equal because the expense describes only the events of the current year,
and the allowance is the accumulated result of events over a number of past years. The
only way that they could be equal would be if write-offs during the past year exactly
equalled the beginning balance of the allowance.
5. Revenues and expenses are not matched under the direct write-off method because the
revenue from the bad debt sales often appears on the income statement of one period
while the expense of getting those sales appears on the income statement of a later period.
6. The accounting principle of materiality holds that the requirements of accounting principles
may be ignored if the effect on the financial statements is unimportant to their users.
7. Creditors prefer notes to accounts receivable because the notes can be more easily
converted into cash before becoming due by discounting (or selling) them to a bank. Also,
a note represents a clear written acknowledgement by the debtor of both the debt and its
amount and terms.
8. Trade (Accounts) receivable decreased a total of $105,500,000 from $370,700,000 at
December 31, 2019 to $265,200,000 at December 31, 2020.
*9. If receivables are sold without recourse then the buyer of the receivables has responsibility
to make sure the accounts are ultimately collected and takes the loss for any bad debts.
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw Hill Ltd. 8-3
, Last revised: September 2021
QUICK STUDY
Quick Study 8-1
March 1 Accounts Receivable – JP Holdings............................. 40,000
Sales......................................................................... 40,000
To record credit sale; terms n/30.
1 Cost of Goods Sold ........................................................ 32,000
Merchandise Inventory........................................... 32,000
To record cost of sale.
27 Cash ................................................................................. 40,000
Accounts Receivable – JP Holdings ..................... 40,000
To record receipt of payment in full.
Quick Study 8-2
a. Trophy Services has finished delivering their products on June 1 when the order
was delivered to Central High School. As the shipping terms are FOB destination,
Central High School takes ownership of the goods when they are delivered at the
school.
b. The revenue is measurable because the price of the order is determined to be
$900. The price was determined on a quote or a price list.
c. It is probable that Trophy Services will collect the amount owed from Central High
School. A school is generally a reliable customer as it is accountable to many
stakeholders such as the government, teachers, parents and students. There is
also no indication that Central High School will not be able to pay the invoice.
d. Trophy Services should recognize the accounts receivable and revenue on June 1
when the products have been delivered, the revenue and expenses related to the
transaction are measurable and it is probable that Trophy Services will collect
payment from Central High School.
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw Hill Ltd. 8-4
SOLUTIONS MANUAL
to accompany
Fundamental Accounting Principles
17th Canadian Edition
by Larson/Dieckmann/Harris
Revised for the 17th Edition by:
John Harris, Seneca College
Technical checks by: Rhonda Heninger, SAIT
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw Hill Ltd. 8-1
,Last revised: September 2021
Chapter 8 Receivables
Chapter Opening Critical Thinking Challenge Questions*
- It is critical for businesses like WN Pharmaceuticals to assess customer credit to
determine whether a customer can pay for purchases on a timely basis. Collecting
payments on a timely basis provides businesses the cash to continue their business
activities such as buying more inventory or paying for expenses. Assessing
customer credit also limits the cost of having customers default on payments due to
financial difficulty. If customers cannot pay for purchases, a bad debt expense
needs to be recorded in the income statement, which decreases profit.
*The Chapter 8 Critical Thinking Challenge questions are asked at the beginning of this chapter.
Students are reminded at the conclusion of this chapter to refer to the Critical Thinking
Challenge questions at the beginning of the chapter. The solutions to the Critical Thinking
Challenge questions are available here in the Solutions Manual and accessible to students in
the print and ebooks.
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw Hill Ltd. 8-2
,Last revised: September 2021
Knowledge Check-Up Questions
1. c) 2. a) 3. a) 4. b) 5. c)
6. a) 7. b) 8. c) 9. d) 10. c)
Concept Review Questions
1. In order to record accounts receivable and revenue the criteria of performance,
measurement and collectability need to be met. Performance indicates that a company
transfers the product or service to the customer. Measurement indicates that there is a
determined price and cost of a sale transaction. Collectability indicates that it is probable
that the company will collect payments from a customer.
2. The roles or responsibilities that should be separated within the accounts receivable
process are:
1. Employee responsible for receipt of cash should not have access to record or
authorize transactions in the Accounts Receivable ledger or customer accounts.
2. Employee receiving the cash or preparing the deposit should not be able to
record cash transactions or prepare the bank reconciliation
3. The bank reconciliation should not be prepared by an employee that is involved
in either cash receipts or disbursements.
4. Write offs and adjustments to receivables should be performed by an employee
that does not have ability to record transactions.
3. Writing off a bad debt against the allowance does not reduce the estimated realizable value
of a company’s accounts receivable because the write-off reduces the balances of both
Accounts Receivable and Allowance for Doubtful Accounts by equal amounts so the
difference between the two accounts remains the same.
4. The adjusted balances of Bad Debt Expense and Allowance for Doubtful Accounts are
virtually never equal because the expense describes only the events of the current year,
and the allowance is the accumulated result of events over a number of past years. The
only way that they could be equal would be if write-offs during the past year exactly
equalled the beginning balance of the allowance.
5. Revenues and expenses are not matched under the direct write-off method because the
revenue from the bad debt sales often appears on the income statement of one period
while the expense of getting those sales appears on the income statement of a later period.
6. The accounting principle of materiality holds that the requirements of accounting principles
may be ignored if the effect on the financial statements is unimportant to their users.
7. Creditors prefer notes to accounts receivable because the notes can be more easily
converted into cash before becoming due by discounting (or selling) them to a bank. Also,
a note represents a clear written acknowledgement by the debtor of both the debt and its
amount and terms.
8. Trade (Accounts) receivable decreased a total of $105,500,000 from $370,700,000 at
December 31, 2019 to $265,200,000 at December 31, 2020.
*9. If receivables are sold without recourse then the buyer of the receivables has responsibility
to make sure the accounts are ultimately collected and takes the loss for any bad debts.
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw Hill Ltd. 8-3
, Last revised: September 2021
QUICK STUDY
Quick Study 8-1
March 1 Accounts Receivable – JP Holdings............................. 40,000
Sales......................................................................... 40,000
To record credit sale; terms n/30.
1 Cost of Goods Sold ........................................................ 32,000
Merchandise Inventory........................................... 32,000
To record cost of sale.
27 Cash ................................................................................. 40,000
Accounts Receivable – JP Holdings ..................... 40,000
To record receipt of payment in full.
Quick Study 8-2
a. Trophy Services has finished delivering their products on June 1 when the order
was delivered to Central High School. As the shipping terms are FOB destination,
Central High School takes ownership of the goods when they are delivered at the
school.
b. The revenue is measurable because the price of the order is determined to be
$900. The price was determined on a quote or a price list.
c. It is probable that Trophy Services will collect the amount owed from Central High
School. A school is generally a reliable customer as it is accountable to many
stakeholders such as the government, teachers, parents and students. There is
also no indication that Central High School will not be able to pay the invoice.
d. Trophy Services should recognize the accounts receivable and revenue on June 1
when the products have been delivered, the revenue and expenses related to the
transaction are measurable and it is probable that Trophy Services will collect
payment from Central High School.
Solutions Manual to accompany Fundamental Accounting Principles, 17th Canadian Edition. © 2022 McGraw Hill Ltd. 8-4
