Question
On August 7, Lett granted Smiley a sales allowance and reduced the cost of the merchandise by $60 because some of the goods were slightly
On August 7, Lett granted Smiley a sales allowance and reduced the cost of the merchandise by $60 because some of the goods were slightly damaged.
On August 12, Smiley paid the account in full.
Exercise 8-2
Information regarding to Hermesch Company for 2008 is summarized below:
|
|
Total credit sales | $2,200,000 |
Accounts receivable at Dec. 31 | 825,000 |
| 33,000 |
Instructions
Assume that Hermesch Company estimates its bad debts expense based on 6% of accounts receivable. What amount of bad debts expense will it record if it has an Allowance for Doubtful Accounts debit balance of $3,000?
(1) Write the adjusting entry on Dec 31, 2008.
(2). How is the allowance account presented on the balance sheets?
Exercise 8-3
Leland Company has accounts receivable of $98,100 at March 31. An analysis of the accounts shows the following.
Month of Sales | Balance, March 31 |
March | $65,000 |
February | 17,600 |
January | 8,500 |
Prior to January | 7,000 |
| $98,100 |
Credit terms are 2/10, n/30. At March 31, Allowance for Doubtful Accounts has a credit balance of $1,200 prior to adjustment. The company uses the percentage of receivables basis for estimating uncollectible accounts. The company's estimate of bad debts is as follows.
Age of Accounts | Estimated % Uncollectible |
1-30 days | 2% |
30-60 days | 5% |
60-90 days | 30% |
Over 90 days | 50% |
Instructions
(a) Determine the total estimated uncollectibles.
Accounts receivable | Amount | % | Est. Uncollectible |
1-30 days | $65,000 | 2 | $1,300 |
30-60 days | 17,600 | 5 | 880 |
60-90 days | 8,500 | 30 | 2,550 |
Over 90 days | 7,000 | 50 | 3,500 |
Total |
|
| $8,230 |
(b) Prepare the adjusting entry on March 31 to record bad debts expense.
March 31 | Bad debt expense |
| 7,030 |
|
|
| Allowance for doubtful account |
| 7,030 |
(c). On April 11, Leland Company determined that one customer - Kevin Hayes' account was uncollectible and wrote off $3,000. Prepare the journal entries.
April 11 | Allowance for doubtful account |
| 3,000 |
|
|
| Accounts receivable _ Hayes |
| 3,000 |
(d) What is the net realizable value of accounts receivable before and after writeoff?
| Before writeoff | After writeoff |
Accounts receivable | 98,100 | 98,100-3,000=95,100 |
Less: allowance for doubtful account | 8,230 | 8,230-3,000=5,230 |
Net realizable value | 89,870 | 89,870 |
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