1. On December 31, 2011, Colonial Corporation had the following account balances related to credit sales and receivables prior to recording adjusting entries: Accounts receivable $25,000 Allowance for doubtful accounts 700 (credit) Sales revenue (all credit sales) 400,000 As the first step in the adjustments process, Colonial decided to write off as uncollectable a $500 account receivable balance for one of its customers, Imperial buying Co. Requirements: A. Present the journal entry that Colonial Corporation would record to write off Imperial Buying's accounts receivable balance on 12/31/11. Then, show the balances in the three accounts listed above after the adjustment has been recorded B. Present the necessary year-end adjusting entry, after the Write-off of Imperial Buying's balance has been recorded, related to uncollectible accounts for each of the following independent assumptions (use the method corresponding to each assumption); B1. An aging of accounts receivable is completed. It is estimated that $2,150 of the receivables outstanding will be uncollectible. B2. It is estimated that 1% of credit sales for the year will prove to be uncollectible. B3. Assume the same information presented in part 1 except that the allowance for doubtful accounts had a debit balance of $200 rather than the one you calculated in part A (after writing off the Imperial Buying receivable) C. Assume Colonial Corporation is subject to a 30% income tax and uses alternative B2 above. C1. Which accounts in the 12/31/11 income statement would be impacted and by how much if Colonial decides to reduce its 1% estimate to 0.5% of credit sales? C2. What impact would the change described in C1 have on Colonial's cash flow for the years ending 12/31/11 and 12/31/12? 1. On December 31, 2011, Colonial Corporation had the following account balances related to credit sales and receivables prior to recording adjusting entries: Accounts receivable $25,000 Allowance for doubtful accounts 700 (credit) Sales revenue (all credit sales) 400,000 As the first step in the adjustments process, Colonial decided to write off as uncollectable a $500 account receivable balance for one of its customers, Imperial buying Co. Requirements: A. Present the journal entry that Colonial Corporation would record to write off Imperial Buying's accounts receivable balance on 12/31/11. Then, show the balances in the three accounts listed above after the adjustment has been recorded B. Present the necessary year-end adjusting entry, after the Write-off of Imperial Buying's balance has been recorded, related to uncollectible accounts for each of the following independent assumptions (use the method corresponding to each assumption); B1. An aging of accounts receivable is completed. It is estimated that $2,150 of the receivables outstanding will be uncollectible. B2. It is estimated that 1% of credit sales for the year will prove to be uncollectible. B3. Assume the same information presented in part 1 except that the allowance for doubtful accounts had a debit balance of $200 rather than the one you calculated in part A (after writing off the Imperial Buying receivable) C. Assume Colonial Corporation is subject to a 30% income tax and uses alternative B2 above. C1. Which accounts in the 12/31/11 income statement would be impacted and by how much if Colonial decides to reduce its 1% estimate to 0.5% of credit sales? C2. What impact would the change described in C1 have on Colonial's cash flow for the years ending 12/31/11 and 12/31/12
