Assiniboia Co. prepares monthly financial statements and estimates its uncollectible accounts at the end of each month.
Question:
Assiniboia Co. prepares monthly financial statements and estimates its uncollectible accounts at the end of each month. Assiniboia Co. has a May 31 fiscal year end, closes temporary accounts annually, and uses the perpetual inventory system.
On March 31, 2014, after completing its month-end adjustments, it had accounts receivable of $89,200, a credit balance of $4,930 in Allowance for Doubtful Accounts, and a debit balance in Bad Debt Expense of $17,980. In April and May, the following occurred:
April
1. Sold $65,100 of merchandise on credit. The cost of the merchandise was $35,530.
2. Accepted $800 of returns on the merchandise sold on credit. These customers were issued credit memos. The merchandise had a cost of $440 and was discarded because it was damaged.
3. Collected $69,200 cash on account from customers.
4. Interest charges of $1,700 were charged to outstanding accounts receivable.
5. Recorded the monthly adjustment for bad debts. Uncollectible accounts were estimated to be 6% of accounts receivable.
May
1. Credit sales were $76,600. The cost of the merchandise was $42,130.
2. Received $450 cash from a customer whose account had been written off in March.
3. Collected $78,500 cash, in addition to the cash collected in (2) above, from customers on account.
4. Wrote off $9,580 of accounts receivable as uncollectible.
5. Interest charges of $1,480 were charged to outstanding accounts receivable.
6. Recorded the year-end adjustment for bad debts. Uncollectible accounts were estimated to be 6% of accounts receivable.
Instructions
(a) For each of these transactions, indicate if the transaction has increased (+) or decreased (-) Cash, Accounts Receivable, Allowance for Doubtful Accounts, Inventory, Total Assets, and Owner's Equity and by how much.
If the item is not changed, write NE to indicate there is no effect. Use the following format, in which the first one has been done for you as an example.
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(b) Show how accounts receivable will appear on the May 31, 2014, balance sheet.
(c) What amount will be reported as bad debt expense on the income statement for the year ended May 31, 2014?
TAKING IT FURTHER
To eliminate bad debt expense, should Assiniboia require all of its customers to pay cash? Explain.
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
Step by Step Answer:
a Allow Transaction for Acc Doubt Total Owners Cash Receiv Accts Invent Assets Equity April 1 NE 65100 NE 35530 29570 29570 2 NE 800 NE NE 800 800 3 6...View the full answer
Accounting Principles Part 2
ISBN: 978-1118306796
6th Canadian edition Volume 1
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Kinnear, Joan E. Barlow
