Martell Distilleries, Inc. is a wholesale liquor distributor across seven counties.

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Description

Chapter 07 Homework Spreadsheet
Martell Distilleries, Inc. is a wholesale liquor distributor across seven counties. It sells its products to customers on a credit basis. The overwhelming majority of its sales transactions are on open, 30-day net terms. By law, returns and exchanges are not permitted on the sale of alcohol. Occasionally, for large transactions, or with customers who do not wish to apply for revolving terms, Martell will require a written promissory note as evidence of indebtedness. In accordance with Generally Accepted Accounting Principles, Martell accounts for all of its receivables, both written and oral, on a net realizable basis. Martell closes its books at the end of the calendar year.
An adjusting entry for bad debt is recorded annually on December 31st.
On December 31, 2012, Martell’s Balance Sheet disclosed the following with respect to receivables:
MARTELL DISTILLERIES, INC.
Balance Sheet (Partial)
December 31, 2012
Current Assets
Accounts Receivable
Less: Allowance for Uncollectible Accounts

$462,000
30,000

During 2013, sales on open account were $1,750,000, cash collections on revolving accounts were $1,830,000, and
$35,000 in specific accounts were written off as uncollectible. Also, $3,000 was collected from a customer whose
account was written off in early 2012. In addition to the summary of routine receivables transactions above, the
following specific transactions occurred during 2013:
Feb. 28

Mar. 31

Apr. 30

Jun. 30

Sold a pallet of rare Dornish Cabernet to Lorathii Trading Company for $10,000, and
accepted a 7-month, 10% Note, with both principal and interest due at maturity on
September 30th. Martell’s cost of capital is 10%, which is also the market rate for
transactions of this duration and risk.
Sold summer ale to Volantis Brewhaus, and accepted a non-interest bearing Note in the
amount of $8,000, due in two year’s time. Martell judges the risk associated with this
transaction as equal to that with the Lorathii Trading Company.
Transferred receivables of $100,000 to Arren Factoring Corporation without recourse.
Arren charges a 2.5% finance charge of the receivables exchanged. The transfer meets the
criterion established ASC 860-10-40.
Discounted its Note with the Lorathii Trading Company to the Bank of Westeros without
recourse. The Bank of Westeros offers discount terms of 12% (Hint: accrue interest on the
Note prior to its discounting).

An aging of Martell’s open Accounts Receivable at December 31, 2013 reveals the following:

AGE GROUP
0 to 60 Days
61 to 90 Days
91 to 120 Days
Over 120 Days

PERCENTAGE OF YEAR-END
RECEIVABLES IN GROUP
65%
20%
10%
5%

PERCENT
UNCOLLECTIBLE
4%
15%
25%
40%

In addition to the above aging schedule, Martell’s Comptroller, Arianne Martell, processes a routine credit check
on Volantis Brewhaus, judging the risk of default on its Note as negligible, and elects not to impair the Note,
maintaining the current discount schedule.

Continued on Reverse

Instructions: 1.
2.
3.
4.
5.

Prepare Summary General Journal entries for Martell’s routine receivable
transactions (sales, collections, and bad-debt related transactions).
Journalize the specific receivable transactions occurring on February 28th, March
31st, April 30th, and June 30th. Explanations are not required.
Prepare all appropriate adjusting entries related to the interest-bearing
receivables. Explanations are not required.
Prepare the appropriate adjusting entry for bad debt.
Show the Balance Sheet presentation for Martell’s receivables at December 31,
2013.

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