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

(Recording Bad Debts) Duncan Company reports the following financial information before adjustments.

Debit

Credit

Accounts receivables

\(100,000

Allowance for doubtful accounts

\)2,000

Sales revenue (All on credit)

900,000

Sales return and allowance

50,000

Instructions

Prepare the journal entry to record Bad Debt Expense assuming Duncan Company estimates bad debts at (a) 5% of accounts receivable and (b) 5% of accounts receivable but Allowance for Doubtful Accounts had a $1,500 debit balance.

Short Answer

Expert verified

The total debit and credit side of the journal is$9,500.

Step by step solution

01

Definition of Sales return and Allowances

Sales return and allowance account is a contra-revenue account reporting defective goods or defective orders returned by a customer.

02

Journal Entries

Date

Accounts and explanation

Debit $

Credit $

a

Bad debt expenses

$3,000

Allowance for doubtful accounts

$3,000

b

Bad debt expenses

$6,500

Allowance for doubtful accounts

$6,500

Working note:

1. Calculation of allowance:Allowancefordoubtfulaccounts=Accountsreceivables脳Estimatedbaddebtpercentage-Creditbalanceofallowance=$100,000脳5%-2000=$3,000


2. Calculation of allowance:


Allowancefordoubtfulaccounts=Accountsreceivables脳Estimatedbaddebtpercentage+Debitbalanceofallowance=$10,000脳5%+1500=$6,500

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Most popular questions from this chapter

Wood Incorporated factored $150,000 of accounts receivable with Engram Factors Inc. on a without-recourse basis. Engram assesses a 2% finance charge of the amount of accounts receivable and retains an amount equal to 6% of accounts receivable for possible adjustments. Prepare the journal entry for Wood Incorporated and Engram Factors to record the factoring of the accounts receivable to Engram.

(Bank Reconciliation and Adjusting Entries) Logan Bruno Company has just received the August 31, 2017, bank statement, which is summarized below.

Country National Bank

Disbursement

Receipts

Balance

Balance August 1

\(9,369

Deposits during August

\)32,200

\(41,569

Note collected for depositor, including \)40 interest

1,040

42,609

Checks cleared during August

34,500

8,109

Bank service charges

20

8,089

Balance, August 31

8,089

The general ledger Cash account contained the following entries for the month of August.

Cash

Balance, August 1

10,050

Disbursement in August

34,903

Receipt during August

35,000

Deposits in transit at August 31 are \(3,800, and checks outstanding at August 31 total \)1,050. Cash on hand at August 31 is \(310. The bookkeeper improperly entered one check in the books at \)146.50 which was written for $164.50 for supplies (expense); it cleared the bank during the month of August.

Instructions

(a) Prepare a bank reconciliation dated August 31, 2017, proceeding to a correct balance.

(b) Prepare any entries necessary to make the books correct and complete.

(c) What amount of cash should be reported in the August 31 balance sheet?

(Transfer of Receivables without Recourse) JFK Corp. factored $300,000 of accounts receivable with LBJ Finance Corporation on a without recourse basis on July 1, 2017. The receivables records are transferred to LBJ Finance, which will receive the collections. LBJ Finance assesses a finance charge of 1陆% of the amount of accounts receivable and retains an amount equal to 4% of accounts receivable to cover sales discounts, returns, and allowances. The transaction is to be recorded as a sale.

Instructions

(a) Prepare the journal entry on July 1, 2017, for JFK Corp. to record the sale of receivables without recourse.

(b) Prepare the journal entry on July 1, 2017, for LBJ Finance Corporation to record the purchase of receivables without recourse.

What are the basic problems that occur in the valuation of accounts receivable?

Kraft Enterprises owns the following assets at December 31, 2017.

Cash in bank 鈥� saving account

68,000

Checking account balance

17,000

Cash on hand

9,300

Post-dated Checks

750

Cash refunded due from IRS

31,400

Certificate of deposits (180-days)

90,000

What amount should be reported as cash?
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