Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 7: Question: E7-9 (page 366)

Computing Bad Debts and Preparing Journal Entries) The trial balance before adjustment of Taylor Swift Inc. shows the following balances.

Debit

Credit

Accounts Receivable

\(90,000

Allowance for Doubtful Accounts

1,750

Sales revenue (all on credit)

\)680,000

Instructions

Give the entry for estimated bad debts assuming that the allowance is to provide for doubtful accounts on the basis of (a) 4% of gross accounts receivable and (b) 5% of gross accounts receivable and Allowance for Doubtful Accounts has a $1,700 credit balance.

Short Answer

Expert verified

Debit and Credit side of journal totals$8,150.

Step by step solution

01

Definition of Bad Debt Expenses

Bad debt expense is an account reporting the amount of money due from the receivables that are now uncollectible.

02

Journal entries

Date

Accounts and Explanation

Debit $

Credit $

a

Bad debt expenses

$5,350

Allowance for doubtful accounts

$5,350

(To record the allowance for doubtful accounts)

b

Bad debt expenses

$2,800

Allowance for doubtful accounts

$2,800

(To record the allowance for doubtful accounts)

$8,150

$8,150

Working note:

  1. Calculation of allowance:Allowancefordoubtfulaccounts=Accountsreceivable×Estimatedbaddebtpercentage+Debitbalanceofallowance=$90,000×4%+1,750=$5,3502.Calculation of allowance:Allowanceofdoubtfulaccounts=Accountsreceivables×Estimatedbaddebtpercentage-creditbalanceofallowance=$90,000×5%-1,700=$2,800









Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

(Assigned Accounts Receivable—Journal Entries) Salen Company finances some of its current operations by assigning accounts receivable to a finance company. On July 1, 2017, it assigned, under guarantee, specific accounts amounting to \(150,000. The finance company advanced to Salen 80% of the accounts assigned (20% of the total to be withheld until the finance company has made its full recovery), less a finance charge of ½% of the total accounts assigned.

On July 31, Salen Company received a statement that the finance company had collected \)80,000 of these accounts and had made an additional charge of ½% of the total accounts outstanding as of July 31. This charge is to be deducted at the time of the first remittance due Salen Company from the finance company. (Hint: Make entries at this time.) On August 31, 2017, Salen Company received a second statement from the finance company, together with a check for the amount due. The statement indicated that the finance company had collected an additional $50,000 and had made a further charge of ½% of the balance outstanding as of August 31.

Instructions

Make all entries on the books of Salen Company that are involved in the transactions above.

Moon Hardware is planning to factor some of its receivables. The cash received will be used to pay for inventory purchases. The factor has indicated that it will require “recourse” on the sold receivables. Explain to the controller of Moon Hardware what “recourse” is and how the recourse will be reflected in Moon’s financial statements after the sale of the receivables.

Francis Equipment Co. closes its books regularly on December 31, but at the end of 2017 it held its cash book open so that a more favorable balance sheet could be prepared for credit purposes. Cash receipts and disbursements for the first 10 days of January were recorded as December transactions. The information is given below.

1. January cash receipts recorded in the December cash book totaled \(45,640, of which \)28,000 represents cash sales, and \(17,640 represents collections on account for which cash discounts of \)360 were given.

2. January cash disbursements recorded in the December check register liquidated accounts payable of \(22,450 on which discounts of \)250 were taken.

3. The ledger has not been closed for 2017.

4. The amount shown as inventory was determined by physical count on December 31, 2017.

The company uses the periodic method of inventory.

Instructions

(a) Prepare any entries you consider necessary to correct Francis’s accounts at December 31.

(b) To what extent was Francis Equipment Co. able to show a more favorable balance sheet at December 31 by holding its cash book open? (Compute working capital and the current ratio.) Assume that the balance sheet that was prepared by the company showed the following amounts:

Debit

Credit

Cash

\(39,000

Accounts receivables

42,000

Inventory

67,00

Accounts payable

\)45,000

Other Current liabilities

14,200

On July 1, 2017, Moresan Company sold special-order merchandise on credit and received in return an interest-bearing note receivable from the customer. Moresan will receive interest at the prevailing rate for a note of this type. Both the principal and interest are due in one lump sum on June 30, 2018.

On September 1, 2017, Moresan sold special-order merchandise on credit and received in return a zero-interest-bearing note receivable from the customer. The prevailing rate of interest for a note of this type is determinable. The note receivable is due in one lump sum on August 31, 2019.

Moresan also has significant amounts of trade accounts receivable as a result of credit sales to its customers. On October 1, 2017, some trade accounts receivable were assigned to Indigo Finance Company on a non-notification (Moresan handles collections) basis for an advance of 75% of their amount at an interest charge of 8% on the balance outstanding.

On November 1, 2017, other trade accounts receivable were sold without recourse. The factor withheld 5% of the trade accounts receivable factored as protection against sales returns and allowances and charged a finance charge of 3%.

Instructions

How should Moresan account for the trade accounts receivable factored on November 1, 2017? Why?

Restin Co. uses the gross method to record sales made on credit. On June 1, 2017, it made sales of $50,000 with terms 3/15, n/45. On June 12, 2017, Restin received full payment for the June 1 sale. Prepare the required journal entries for Restin Co.
See all solutions

Recommended explanations on Business Studies Textbooks

Organizational Behavior

Read Explanation

Change Management

Read Explanation

Managers

Read Explanation

Influences On Business

Read Explanation

Intermediate Accounting

Read Explanation

Introduction to Business

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free