– Guinevere’s sales terms are 1/15 n/30 and it records sales at the gross amount of the invoice.

– Guinevere’s year end is June 30

– The unadjusted balance in the Allowance for Doubtful Accounts at June 30 is $8,000 dr.

– Guinevere makes average sales of $2,000,000 per year and averages write offs of uncollectible balances of $100,000 per year.

– Sales for the year ended June 30, 2010 are $1,400,000 credit sales and $400,000 cash sales

– Guinevere has a very conservative receivables management strategy.

– No adjusting entries have been recorded at June 30

Assume Customer F going bankrupt July 4. Assume also that on August 25 Guinevere receives a cheque in the mail from F Company for $6,000 with the following note attached. “The company has reorganized and is trying to restore its credit rating with all its former suppliers. Please accept this cheque with our apologies”. Guinevere should:

A) Make a debit to Cash and credit Miscellaneous Income

B) Make a debit to Cash and credit Uncollectible Accounts Expense

C) Make a debit to Cash and a credit to “Advances from Customers”

D) Make a debit to Cash and a credit to Accounts Receivable (after first reversing the write-off entry)

E) Some other entry

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