Part A (12 marks)

Intercoastal Shelving Company (using the perpetual system for inventory) made a sale to Superb Knives for $8,800 (cost $4,000) on December 10, 2012. Since it was approaching year end, Intercoastal wanted to encourage prompt payment, so it provided generous discounts for those clients able to pay promptly. Thus, Intercoastal offered terms of 5/10, net 20. However, it was discovered on December 12^th that 10% of the shipment was returned that day. After verification of the return, to keep the customer happy, Superb was also granted, on Dec 13^th, a $500 allowance on the remaining product purchased.

Required:

1. Record the above transactions using the gross method.
2. Record the payment received under the gross method assuming payment was received on December 18^th
3. Record the payment received under the gross method assuming payment was received on December 28^th
4. Repeat requirements 1-3 using the net method instead of the gross method.

Part B (8 marks)

Troubled Inc. reported credit sales of $5,400,000 and $4,800,000 for the years ended December 31, 2011 and 2012, respectively. Information on trade accounts receivable for the company is presented below: Days outstanding Current 30-60 61-90 Over 90

Balance in Accounts Receivable, Dec. 31, 2011 397,000 156,000 47,000 17,000

Balance in Accounts Receivable, Dec. 31, 2012 392,000 141,000 33,000 26,000

% of Accounts Receivable estimated to be uncollectible 0.8% 5% 6% 9%

The balance of the allowance for doubtful accounts as of January 1, 2011 was $15,000. In addition, you learn that the company wrote off specific accounts of $18,500 in 2011, and the bad debts expense was $13,000 in 2012. As well, a payment was received for a previously written off account in the amount of $2,100 in 2012.

Required:

Show all the journal entries necessary to record the write offs, payment, and bad debt expense for both 2011 and 2012 fiscal years.