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132 Part 1 Finawelul Accounting Cases Case 5-1 Stern Corporation (A) were circulating that the trustee in bankruptcy for on December 31. 2010, before the yearly financial the Hollowell Company would pay all obligations statements were prepared, the controller of the Stern 100 cents on the dollar. Corporation reviewed certain transactions that affected The Allowance for Bad Debts was adjusted to equal accounts receivable and the allowance for doubtful ac- 3 percent of the balance in Accounts Receivable at counts. The controller first examined the December 31. 2009. balance sheet (Exhibit I on page 133). A subse- the end of the year quent review of the year's transactions applicable to accounts receivable revealed the items listed below. I. Sales on account during 2010 mounted to Questions at $9.965,575 1. Analyze the effect of each of these transactions in 2. Payment received on accounts receivable during terms of its effect on Accounts Receivable. 2010 totaled S9.685,420. Allowance for Doubtful Accounts, and any other 3. During the year. accounts receivable totaling be involved, and prepare neces- $26.854 were deemed uncollectible and were written account that may sary journal entries. 2. Give the correct totals for Accounts Receivable and the Allowance for Douotful Accounts as of 4. Two accounts that had been written off as uncol- Derember 31, 2010, after the transactions affecting lectible in 2009 were collected in 2010. One ac count for $2,108 was paid in full. A partial payment them had been recorded of SI 566 was made by the Hollowell Company on current ratio, acid-test ratio and days another account that originally had amounted to 3. Calculate the December 31, 2010. As receivables figures as of $2.486. The controller was reasonably sure this ac items other than those de- count would be paid in full because reliable reports sume that amounts for December 31, scribed in the case are the same as on fer Copyright o James S. Reece