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Question 2-Receivables On January 1, 2019, Triple Earth Adventures (TEA) started an outdoor experiences business. They specialize in team-based hikes and wilderness retreats. As they
Question 2-Receivables On January 1, 2019, Triple Earth Adventures (TEA) started an outdoor experiences business. They specialize in team-based hikes and wilderness retreats. As they are a service-based business that has a large percentage of corporate clients, they often have very high receivables. It is now December 31, 2021, and the owner of TEA is having some issues with receivables accounting. The bad debt estimate was completed and audited for 2019, confirming its' accuracy. After the statements were audited at the end of 2019, TEA had a debit balance of $190,000 in their accounts receivable account and a credit balance of $6,650 in their allowance for doubtful accounts account. The owner would like you to look at the following transactions, which have occurred over the past two years, and indicate all of the journal entries that should have been recorded from an accounting perspective in 2020 and 2021. 2020 Transactions The company had credit sales of $700,000 The company had cash collections of $220,000 The company had one customer (West Jet Limited) default on their $4,200 balanced owed. The company has elected to use the same default rate from 2019. 2021 Transactions The company had sales of $925,000 of which $410,500 were on credit The company had cash collections of $560,000 The company received partial payment from West Jet Limited ($2,280) The company had one customer (Five Guys Burgers) go bankrupt and was informed that they would not be paying their balance ($8,250) at any point in time in the future. The company has elected to change its default rate of 7.5%
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